The Wet Seal, Inc. (Nasdaq:WTSL), a leading specialty retailer to young women, today announced financial results for the third quarter ended November 2, 2013, and provided its financial outlook for the fourth quarter of fiscal 2013. Third Quarter Fiscal 2013:
- Net sales totaled $127.7 million versus net sales of $135.5 million in the third quarter of 2012.
- Consolidated comparable store sales increased 0.8%, including an increase of 1.7% at Wet Seal and a decrease of 6.7% at Arden B.
- Gross profit increased 11% to $28.9 million compared to $26.0 million a year ago, while gross margin expanded 350 basis points to 22.7% of sales versus 19.2% of sales in the third quarter of 2012. The year-over-year increase is primarily attributable to substantial improvement in merchandise margin due to reduced markdown levels, despite the highly promotional retail environment.
- Operating loss was $14.9 million compared to operating loss of $24.8 million in the third quarter of fiscal 2012. The current year and prior year quarters include $5.1 million and $6.5 million, respectively, of non-cash asset impairment charges. Operating loss in the prior year period also includes $2.1 million in professional fees to defend against a proxy solicitation. Non-GAAP adjusted operating loss, excluding the effect of the aforementioned charges, was $9.8 million in the third quarter of fiscal 2013 compared to non-GAAP adjusted operating loss of $16.2 million in the prior year period.
- Provision for income taxes was $0.1 million compared to a benefit for income taxes of $10.0 million in the prior year quarter. The Company ceased recording benefits for income taxes on pre-tax losses upon establishing a valuation allowance against its deferred tax assets at the end of fiscal 2012.
- Net loss totaled $14.9 million, or $0.18 per diluted share, compared to net loss of $14.8 million, or $0.17 per diluted share, in the prior year quarter. Non-GAAP adjusted net loss in the third quarter of fiscal 2013, excluding the after-tax effect of non-cash asset impairment charges, totaled $9.9 million, or $0.12 per diluted share. Non-GAAP adjusted net loss in the third quarter of fiscal 2012, excluding the after-tax effect of non-cash asset impairment charges, and proxy solicitation costs, was $9.7 million, or $0.11 per diluted share.
- At quarter end, the Company’s inventory per square foot was down 5% versus a year ago, including a decrease of 3% at Wet Seal and 20% at Arden B.
- As of November 2, 2013, the Company remained in strong financial condition, with $65.9 million of cash and cash equivalents and no debt. Merchandise inventories totaled $42.6 million compared to $46.2 million a year ago.
Goodman continued, “We believe the business is well-positioned for holiday with on trend merchandise assortments, innovative marketing programs and an enhanced e-commerce site that has significantly improved the customer shopping experience. Nevertheless, we’ve had a challenging start to the season, reflecting the difficult macro environment and ongoing softness in mall traffic, which is causing us to maintain a cautious outlook for the remainder of the year.”Real Estate During the third quarter of fiscal 2013, the Company opened 10 and closed 3 Wet Seal stores and closed 2 Arden B stores. The Company expects to open an additional 13 new Wet Seal locations in the fourth quarter and is on track to complete a total of 26 new store openings in fiscal 2013. Fourth Quarter Fiscal 2013 Financial Outlook For the fourth quarter of fiscal 2013, the Company estimates net loss per diluted share in the range of $0.14 to $0.17. The financial outlook is based on the following assumptions:
- Total net sales between $134 million and $137 million versus $161.7 million in the fourth quarter of fiscal 2012. This year is a 13 week quarter compared to a 14 week quarter in the prior year.
- Comparable store sales decrease in the high single digits to low double digits.
- Gross margin rate between 21.9% and 23.2% of net sales versus 24.8% in the prior year quarter.
- SG&A expense between 31.7% and 32.4% of net sales versus 35.6% in the prior year quarter. The prior year quarter included a $6.6 million charge to accrue loss contingencies for several litigation matters, a $0.2 million benefit to adjust the amount of professional fees incurred to defend against a shareholder proxy solicitation to replace certain of the Company's board members, $1.3 million in severance charges for a previously announced workforce reduction, and a $0.5 million charge for the early termination of two investment banker retention agreements.
- Operating loss ranging from $11.6 million to $14.1 million. In the fourth quarter of fiscal 2012, operating loss was $25.5 million, including $8.0 million in non-cash asset impairment charges and the aforementioned charges and benefits.
- Four net store openings at Wet Seal and two store closings at Arden B.
- Weighted-average diluted shares outstanding of approximately 84 million shares.
Conference CallThe Company will host a conference call and question and answer session at 2:00 p.m. Pacific Time today. To participate in the conference call, please dial 877-407-3982 or 201-493-6780. A broadcast of the call will also be available on the Company’s website, www.wetsealinc.com. A replay of the call will be available through December 18, 2013. To access the replay, please call (877) 870-5176 or (858) 384-5517 and provide ID number 10000558. About The Wet Seal, Inc. Headquartered in Foothill Ranch, California, The Wet Seal, Inc. is a leading specialty retailer of fashionable and contemporary apparel and accessory items. As of November 2, 2013, the Company operated a total of 530 stores in 47 states and Puerto Rico, including 471 Wet Seal stores and 59 Arden B stores. The Company's products can also be purchased online at www.wetseal.com or www.ardenb.com. For more Company information, visit www.wetsealinc.com. Safe Harbor SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This news release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements that relate to the Company's financial outlook for its fourth quarter of fiscal 2013, its store opening and capital spending plans for all of fiscal 2013, and its merchandising and other strategic actions plans, or any other statements that relate to the intent, beliefs, plans or expectations of the Company or its management. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. This news release contains results reflecting partial year data and non-fiscal data that may not be indicative of results for similar future periods or for the full year. The Company will not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
|The Wet Seal, Inc.|
|Condensed Consolidated Balance Sheets|
|November 2,||February 2,||October 27,|
|Cash and cash equivalents||$||30,084||$||42,279||$||126,343|
|Other current assets||16,110||15,467||7,791|
|Total current assets||124,593||159,228||200,460|
|Net equipment and leasehold improvements||64,919||64,225||73,828|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Accounts payable – merchandise||$||24,623||$||16,978||$||28,128|
|Accounts payable – other||11,361||18,116||13,369|
|Current portion of deferred rent||3,909||2,289||2,456|
|Total current liabilities||64,096||63,730||67,953|
|Other long-term liabilities||1,796||1,908||1,820|
|Total stockholders’ equity||94,531||128,732||215,972|
|Total liabilities and stockholders’ equity||$||191,515||$||226,506||$||319,123|
|Exhibit A (Continued)|
|The Wet Seal, Inc.|
|Condensed Consolidated Statements of Operations|
|(000’s Omitted, Except Share Data)|
|13 Weeks Ended||39 Weeks Ended|
|November 2,||October 27,||November 2,||October 27,|
|Selling, general & administrative expenses||38,743||44,405||115,592||126,215|
|Interest expense, net||(6||)||(10||)||(13||)||(28||)|
|Loss before provision (benefit) for income taxes||(14,861||)||(24,826||)||(10,692||)||(44,828||)|
|Provision (benefit) for income taxes||49||(10,047||)||150||(17,407||)|
|Weighted average shares, basic||83,729,646||88,877,993||86,028,985||88,650,011|
|Net loss per share, basic||$||(0.18||)||$||(0.17||)||$||(0.13||)||$||(0.31||)|
|Weighted average shares, diluted||83,729,646||88,877,993||86,028,985||88,650,011|
|Net loss per share, diluted||$||(0.18||)||$||(0.17||)||$||(0.13||)||$||(0.31||)|
|Exhibit A (continued)|
|The Wet Seal, Inc.|
|Consolidated Statements of Cash Flows|
|39 Weeks Ended|
|November 2,||October 27,|
|CASH FLOW FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net loss to net cash used in operating activities:|
|Depreciation and amortization||10,198||13,531|
|Amortization of premium on investments||123||-|
|Amortization of deferred financing costs||81||81|
|Loss on disposal of equipment and leasehold improvements||83||550|
|Deferred income taxes||-||(17,986||)|
|Changes in operating assets and liabilities:|
|Income taxes receivable||145||(460||)|
|Prepaid expenses and other assets||73||(1,180||)|
|Other non-current assets||29||(7||)|
|Accounts payable and accrued liabilities||(3,295||)||11,767|
|Other long-term liabilities||(112||)||(104||)|
|Net cash used in operating activities||(3,530||)||(13,792||)|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Purchase of equipment and leasehold improvements||(15,853||)||(16,775||)|
|Investment in marketable securities||(9,500||)||-|
|Proceeds from maturity of marketable securities||41,259||-|
|Net cash provided by (used in) investing activities||15,906||(16,775||)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds from exercise of stock options||747||19|
|Repurchase of common stock||(25,318||)||(294||)|
|Net cash used in financing activities||(24,571||)||(275||)|
|DECREASE IN CASH AND CASH EQUIVALENTS||(12,195||)||(30,842||)|
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD||42,279||157,185|
|CASH AND CASH EQUIVALENTS, END OF PERIOD||$||30,084||$||126,343|
|Segment Reporting (Unaudited)|
|The Company operates exclusively in the retail apparel industry in which it sells fashionable and contemporary apparel and accessories items, primarily through mall-based chains of retail stores, to female consumers with a young, active lifestyle. The Company has identified two operating segments (“Wet Seal” and “Arden B”) as defined under applicable accounting standards. E-commerce operations for Wet Seal and Arden B are included in their respective operating segments. Information for the 13 and 39 weeks ended November 2, 2013, and October 27, 2012, for the two reportable segments is set forth below (in thousands, except number of stores as of period end and sales per square foot):|
|Thirteen Weeks Ended November 2, 2013||Wet Seal||Arden B||Corporate||Total|
|% of total sales||90||%||10||%||n/a||100||%|
|Comparable store sales % increase (decrease)||1.7||%||(6.7||)%||n/a||0.8||%|
|Interest expense, net||$||-||$||-||$||(6||)||$||(6||)|
|Loss before provision for income taxes||$||(4,575||)||$||(2,427||)||$||(7,859||)||$||(14,861||)|
|Number of stores as of period end||471||59||n/a||530|
|Sales per square foot||$||58||$||61||n/a||$||59|
|Square footage as of period end||1,881||183||n/a||2,064|
|Thirteen Weeks Ended October 27, 2012||Wet Seal||Arden B||Corporate||Total|
|% of total sales||87||%||13||%||n/a||100||%|
|Comparable store sales % decrease||(13.5||)%||(13.8||)%||n/a||(13.5||)%|
|Interest expense, net||$||-||$||-||$||(10||)||$||(10||)|
|Loss before benefit for income taxes||$||(8,747||)||$||(3,733||)||$||(12,346||)||$||(24,826||)|
|Number of stores as of period end||472||81||n/a||553|
|Sales per square foot||$||59||$||63||n/a||$||59|
|Square footage as of period end||1,885||251||n/a||2,136|
|Thirty-Nine Weeks Ended November 2, 2013||Wet Seal||Arden B||Corporate||Total|
|% of total sales||88||%||12||%||n/a||100||%|
|Comparable store sales % increase (decrease)||0.6||%||(1.0||)%||n/a||0.4||%|
|Operating income (loss)||$||13,928||$||(1,380||)||$||(23,227||)||$||(10,679||)|
|Interest expense, net||$||-||$||-||$||(13||)||$||(13||)|
|Income (loss) before provision for income taxes||$||13,928||$||(1,380||)||$||(23,240||)||$||(10,692||)|
|Sales per square foot||$||183||$||219||n/a||$||186|
|Thirty-Nine Weeks Ended October 27, 2012||Wet Seal||Arden B||Corporate||Total|
|% of total sales||85||%||15||%||n/a||100||%|
|Comparable store sales % decrease||(10.5||)%||(12.2||)%||n/a||(10.7||)%|
|Interest expense, net||$||-||$||-||$||(28||)||$||(28||)|
|Loss before benefit for income taxes||$||(8,003||)||$||(6,614||)||$||(30,211||)||$||(44,828||)|
|Sales per square foot||$||180||$||214||n/a||$||184|
|Exhibit B (Continued)|
|The “Corporate” column is presented solely to allow for reconciliation of store contribution amounts to consolidated operating loss, interest expense, net, and loss before provision (benefit) for income taxes. Wet Seal and Arden B segment results include net sales, cost of sales, asset impairment and other direct store and field management expenses, with no allocation of corporate overhead or interest income and expense.|
|Wet Seal operating segment results during the 13 and 39 weeks ended November 2, 2013, and October 27, 2012, include $4.8 million, $6.1 million, $5.8 million and $16.3 million, respectively, of asset impairment charges.|
|Arden B operating segment results during the 13 and 39 weeks ended November 2, 2013, and October 27, 2012, include $0.3 million, $0.8 million, $0.7 million and $2.7 million, respectively, of asset impairment charges.|
|Corporate expenses during the 13 and 39 weeks ended October 27, 2012, include $0.1 million and $2.0 million of severance cost resulting from the departure of the Company’s previous chief executive officer. Corporate expenses during the 13 and 39 weeks ended October 27, 2012, include $2.1 million in professional fees to defend against a shareholder proxy solicitation to replace a majority of the Company’s board members.|
|Reconciliation of Non-GAAP Financial Measures to Most Directly Comparable Financial Measures (Unaudited)|
|Included within this press release are references to non-GAAP financial measures (“non-GAAP” or “adjusted”), including operating loss, net loss and net loss per diluted share before certain charges. These financial measures are not in compliance with U.S. generally accepted accounting principles (“GAAP”) and are not necessarily comparable to similar measures presented by other companies. The Company believes that this non-GAAP information is useful as an additional means for investors to evaluate the Company's operating performance, when reviewed in conjunction with GAAP financial statements. These amounts are not determined in accordance with GAAP and therefore should not be used exclusively in evaluating the Company's business and operations. For further information, see “Company Statement on Disclosure of Non-GAAP Financial Measures” within the Investor Relations section of the Company's corporate web site, www.wetsealinc.com.|
|The following is a reconciliation of the applicable GAAP financial measures to the non-GAAP financial measures (in millions, except for net loss per diluted share):|
|13 Weeks Ended||13 Weeks Ended|
|November 2, 2013||October 27, 2012|
|Loss||Net Loss||Share||Loss||Net Loss||Share|
|GAAP financial measure||$||(14.9||)||$||(14.9||)||$||(0.18||)||$||(24.8||)||$||(14.8||)||$||(0.17||)|
|Proxy solicitation costs, net of income taxes||-||-||-||2.1||1.3||0.01|
|Non-cash asset impairment charges, net of income taxes||5.1||5.0||0.06||6.5||3.8||0.05|
|Non-GAAP financial measures||$||(9.8||)||$||(9.9||)||$||(0.12||)||$||(16.2||)||$||(9.7||)||$||(0.11||)|
|During the prior year third quarter, the Company engaged in a defense against a shareholder proxy solicitation that sought to replace a majority of the Company’s board members, incurring professional fees of $2.1 million in this effort. The proxy solicitation ultimately led to an agreement to replace four of the Company’s seven board members during the quarter. Given the unique nature of this corporate governance event and the magnitude of professional fees incurred, the Company believes the presentation of its historical financial information excluding these non-cash charges to be beneficial to its investors.|
|From time to time, the Company determines the carrying values of certain of its long-lived assets are not supported by their anticipated future cash flows and, as a result, must record non-cash charges to impair these assets. The timing and magnitude of these charges can be sporadic, thus significantly affecting the reported financial results of the fiscal period in which they are recorded. Given the unique nature and sporadic timing of these charges, the Company consistently presents these charges as a separate line item within its statements of operations and, similarly, believes the presentation of its historical financial information excluding these non-cash charges to be beneficial to its investors.|